Tuesday, September 21, 2010

Wrangling over 'wrapping': Insurers raise rates for employers who use cost-cutting plan

By Jay Greene

Some health insurers in Southeast Michigan are beginning to charge higher premiums to employers who offer high-deductible employee health plans and then "wrap" the plans by buying gap insurance or giving workers subsidies to cover the deductibles.

The reason? Insurers say usage of health care services is going up because employees bear little or no responsibility for health care costs.

"Often, employers go the high-deductible route and then cover the deductible by funding an employee's (health savings account) to a point where the employee no longer has any skin in the game," said Steve Selinsky, director of sales and marketing with BeneSys, a Troy-based third-party administrator of insurance services.

Wrapping refers to when employers increase their health plan deductible, which lowers premium costs, and then reimburse employees for all, or a part, of their health expenses falling under the increased deductible.

This differs from the original concept of high-deductible plans, in which employees were responsible for deductibles of up to $5,000, but typically $1,000-$2,500, and so had a financial incentive to eliminate unnecessary care and seek lower-cost, higher-quality treatments. John Dunn, vice president of middle- and small-group sales for Blue Cross, said Blue Cross data shows that there is a 4 percent to 8 percent difference in utilization and expenses between those plans that are wrapped and those that are not.

He said Blue Cross in January will start charging employers that wrap between 4 percent and 8 percent more to account for the expected higher utilization.

Don Whitford, vice president of sales with Priority Health, said the health plan earlier this year began charging higher rates — 12 percent to 18 percent more — for companies that wrap their high-deductible health plans.

(Jon Clement, vice president of finance of Health Alliance Plan) said HAP decided five years ago to price its high-deductible plans to assume a higher utilization rate that would accommodate employer decisions to wrap their plans.

Comment: As more employers are moving to high-deductible health plans to take advantage of the lower premiums, private insurers, being the market innovators that they are, were not going to stand by as they watch potential premium dollars move into health savings accounts or other options such as flexible spending accounts or health reimbursement arrangements.

From the insurers' perspective, the high deductible is for the purpose of creating financial barriers to health care access. If the patient is forced to pay a significant amount out of pocket - the deductible - before insurance coverage kicks in, then the patient is going to forgo health care, much of it beneficial, simply because it is too expensive. Since it is less likely that the deductible threshold would be met, that reduces the chances of the insurer having to pay out any benefits at all.

The rationale of the health savings accounts, which pay health care costs before the deductibles are met, is that patients would be better shoppers since they are using their own funds from the accounts which they own, achieving the same purpose as the deductibles alone. In theory, the health savings accounts are funded by the premium savings - savings that reduce insurer revenues.

Now the insurers contend that the accounts allow patients to be spendthrifts. They insist that patients are much more likely to spend the funds if they come from a delegated savings account than they would if they came from other personal savings or current income. They are using this as an excuse to recover the premium discount for the high-deductible plans - in essence, reaching into the health savings accounts and stealing the employees' own funds (though indirectly through higher premiums paid by the employee in payroll deductions or forgone wage increases).

Although this is yet one more addition to the litany of reasons that high-deductible plans with health savings accounts are a highly flawed method of financing health care, it is much more a further indictment of the private insurance industry which will always find a way to make another buck off of our health misfortunes.